April 01, 2020

Understanding the SBA Economic Injury Disaster Loan

Disaster funding – it’s confusing! Here are the basics, as of today. Please note that, unfortunately, some of the details of the programs described below are still being fleshed out. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27th. The CARES Act not only gave us the Paycheck Protection Program (PPP) but it also added some provisions to the already existing SBA Economic Injury Disaster Loan (EIDL). Below is a brief overview of the EIDL.

In terms of government disaster funding related to the current COVID-19 pandemic, most options will go directly through said government entity, ie the Small Business Administration (SBA) or New York City Department of Small Business Services (SBS) but some funding may be processed through a lender or a bank.

Applications for the SBA Economic Injury Disaster Loan (EIDL) are live. This is money coming straight from the treasury, there is no intermediary – you can apply directly with the SBA here. EIDL money can be used as working capital to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.

Some highlights of the EIDL:

  • The SBA can approve and offer EIDL loans based solely on an applicant’s credit score or use an appropriate alternative method for determining applicant’s ability to repay.
  • Businesses may qualify for loans up to $2 million. Award is based on the size and type of business.
  • The interest rate is 3.75% for small businesses.
  • The SBA waived any personal guarantee on advances and loans below $200,000.
  • Term: up to 30 years.
  • Deferral period: one year.
  • $10K emergency grant provision added through CARES Act.

Unfortunately, there is no current guidance on how long it will be before the money is available to businesses for this product. Millions of businesses will be applying for these loans which of course slows turnaround time. The sooner you apply the better.

You can apply to multiple government sponsored relief, but keep in mind that your applications cannot be ‘duplicative of purpose and amounts’ i.e. you cannot double dip. Make sure you are keeping track of what type of funding you are asking for from each government source you apply to and that requests apply to different expenses.  You should also keep in mind that if you get approved for a disaster loan you are not obliged to take it so you might as well apply, apply, apply!

If you have any questions please contact Natalie Vichnevsky.